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The Dynamics of Firm Size Distribution

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  • Ribeiro, Eduardo Pontual

Abstract

The shape and evolution of firm size distribution has been studied in industrial organization and labor economics. The standard hypothesis of Gibrat’s law of proportionate effect posits that the rate of firm growth is size-independent. We test Gibrat’s law using a new empirical methodology and considering the underinvestigated Brazilian case. Quantile regression is used to estimate the evolution of firm size distribution and to investigate the validity of Gibrat’s law in some parts of the conditional distribution, unlike previous studies, which considered the conditional mean dynamics only. An interesting empirical issue is that usual IV/GMM methods are inappropriate under the null but consistent under the alternative hypothesis, while non-IV methods that impose exogeneity are consistent only under the null hypothesis. Results suggest that Gibrat’s law is rejected; that smaller firms grow faster; and that there seems to be a strong negative asymmetry in conditional distribution as firm size increases.

Suggested Citation

  • Ribeiro, Eduardo Pontual, 2007. "The Dynamics of Firm Size Distribution," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 27(2), November.
    • Handle: RePEc:sbe:breart:v:27:y:2007:i:2:a:1525
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    References listed on IDEAS

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    Cited by:

    1. de Carvalho, Antonio Gledson, 2008. "The Effect of Size and Institutional Development on the Growth of Brazilian Firms," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 62(4), December.
    2. A. A. Blokhin & A. A. Likhachev, 2021. "Institutional Barriers for Fast Growing Companies," Studies on Russian Economic Development, Springer, vol. 32(4), pages 364-373, July.
    3. Elert, Niklas & Halvardsson, Daniel, 2012. "Economic Freedom and Institutional Convergence," Ratio Working Papers 200, The Ratio Institute.
    4. Sven-Olov Daunfeldt & Niklas Elert, 2013. "When is Gibrat’s law a law?," Small Business Economics, Springer, vol. 41(1), pages 133-147, June.
    5. Christos Axioglou & Nicos Christodoulakis, 2019. "Which firms survive in a crisis? Corporate dynamics in Greece 2001-2014," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 133, Hellenic Observatory, LSE.
    6. Christos Axioglou & Nicos Christodoulakis, 2021. "Which firms survive in a crisis? Investigating Gibrat’s Law in Greece 2001–2014," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(2), pages 159-217, June.
    7. Elsa de Morais Sarmento & Alcina Nunes, 2012. "The Dynamics of Employer Entreprise Creation in Portugal Over the Last Two Decades: A Firm Size, Regional and Sectoral Perspective," Notas Económicas, Faculty of Economics, University of Coimbra, issue 36, pages 6-22, December.

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